The Hong Kong Monetary Authority (HKMA) started the second phase of its central bank digital currency (CBDC), e-HKD, on September 23. In an announcement, the HKMA disclosed that Phase 2 would see 11 groups of firms across various sectors explore the use of e-HKD and tokenized deposits.
According to the authority, the selected firms will test the digital currency for three qualities: the settlement of tokenized assets, offline payments, and programmability. However, they also have to determine the commercial viability of this tokenized form of money in real-world settings.
Firms participating in the second phase include ANZ, Airstar Bank, Aptos Labs, BlackRock, Bank of Communications (Hong Kong), ChinaAMC, China Mobile, DBS, Fidelity International, Kasikornbank, and Sanfield (Management).
Meanwhile, some firms that took part in the first phase are also involved in Phase 2. These include HSBC, Hang Seng Bank, Boston Consulting Group, Standard Chartered, Mastercard, Visa, Bank of China (Hong Kong), China Construction Bank (Asia), and ICBC (Asia).
The result of the second phase will determine how the HKMA progresses with its plan to implement a digital currency regime in the city that will include CBDC and privately issued tokenized money.
It said:
“The outcome of Phase 2 will help the HKMA understand the practical issues that may be faced in designing, implementing and operating a digital money ecosystem that comprises both publicly and privately issued digital moneys.”
The second phase is also expected to take up to 12 months, with results scheduled for release by the end of 2025. Several of the participants will work together to test the possible applications. For instance, Standard Chartered will collaborate with Mastercard and BlackRock to test the trading and settlement of tokenized assets using e-HKD and digital money. In contrast, the Bank of Communications and China Mobile will test offline payments using SIM cards as an e-HKD wallet.
HKMA rebrands e-HKD project as Project e-HKD+
Meanwhile, the Project will now focus on e-HKD, expand to tokenized deposits, and fully explore the digital money ecosystem in line with this new commitment, the authority renamed Project e-HKD+ to capture its scope.
HKMA said:
“The project has been renamed as Project e-HKD+, reflecting the evolving fintech landscape and the HKMA’s commitment to unlocking the full potential of digital money.”
The CEO of HKMA, Eddie Yu, explained that the rebranding is consistent with the authority’s commitment to digital money innovation. He noted that the e-HKD pilot programs offer the regulatory authority an opportunity to work with industry stakeholders and explore how new forms of digital money can add unique value to the general public.
The authority also plans to establish an industry forum for e-HKD so that all firms involved in the pilot program can collaborate and further address common issues while exploring and implementing new use cases.
Crypto adoption in Hong Kong on the rise
The progress with the e-HKD program highlights Hong Kong’s regulatory permissive regime, which has made it one of the major crypto hubs in Asia. With mainland China heavily opposed to the crypto industry, Hong Kong has become a hub for crypto investors in the Greater China region.
According to a recent report by Chainanalysis, Hong Kong is one of the two areas driving the crypto economy in Eastern Asia, with South Korea being the other. Over the past year, the region recorded an 85.6% growth in its crypto market, enough to rank it 30th globally in terms of crypto adoption.
Interestingly, institutional activity has been behind most of this growth, with institutional investors dominating the decentralized exchanges and applications in the region. This is surprising given that most institutional investors usually prefer centralized alternatives, but it likely points to these investors seeking to capitalize on market inefficiencies as an investment strategy.
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